Buy Divyashakti Granites - CMP Rs 82, Target Rs 200.

Introduction:

Divyashakti Granites is an interesting play for Quartz demand in the US. The company exports granites to US and has a small scale of operations. It's a net cash company with a good amount of cash on books compared to market cap. The current business is doing well. Management is very conservative too. They hold a good chunk of the company too.

Analysis:

  1. What attracted me to this company is they recently invested heavily in Quartz.
  2. In September quarter they have added Rs 25 Cr in fixed assets.
  3. Engineered stone/Quartz is a high returns business and is growing very fast in the US.
  4. Comparable company is Pokarna and taking that as base we can see Rs 25 Cr adding to top line once peak utilisation is achieved.
  5. Gross margins are at 40-50%. That gives us 10-12 Cr gross profit. Less depreciation at 10% is 8-10 Cr. At 33% tax rate, we can see an addition of Rs 7Cr approx, which is considerable given current bottom line.

I expect the stock price to double and settle at Rs 200 once the plant kicks in.

Disclosure: Invested at Rs 88.